RBI defers EMIs on term loans for three months
Interest continues to accrue on outstanding loan amount
In a big relief to individuals and companies reeling under financial stress following the countrywide lockdown to combat the spread of Covid-19, the Reserve Bank of India (RBI) on Friday allowed lenders to provide a threemonth deferment on payments of equated monthly instalments (EMI) for all term loans that were outstanding as on March 1.
Term loans include retail loans such as home loans, automobile loans, personal loans, credit card dues and education loans and microfinance loans besides farm loans and crop loans that have a fixed tenure. The moratorium will apply for loan instalments falling between March 1 and May 31. The apex bank also announced deferment of interest payment on working capital loans by three months.
The move would significantly ease pressure on both lenders and borrowers as availing such a moratorium would not lead to downgrade in an individual’s credit rating/credit score and also not affect the classification of the loan on the banks books (and would not require any provisioning). The RBI said that availing moratorium does not entail any changes in the existing terms and conditions of the loan. So, if you don’t pay your EMIs in these three months, banks won’t term your account a non-performing asset (NPA).
However this is a temporary deferral and the interest amount shall continue to accrue on the outstanding portion of the term loans even during the moratorium. The RBI asked lending institutions to frame board-approved polices for providing the reliefs to borrowers.
In a video address, Mr Shaktikanta Das, governor, RBI said, “In respect of all term loans, all commercial banks, co-operative banks, all-India financial Institutions, and NBFCs are permitted to grant a moratorium of three months on payment of all instalments1 falling due between March 1 and May 31. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.”